As home-buying demand cools from the record pace of 2021, competition is now hottest for the lowest-priced homes as mounting affordability obstacles stretch buyers' budgets, a new Zillow® analysis finds. 

Throughout most of the pandemic, buyers shopping in the middle and top price tiers faced the strongest competition — inventory was relatively lower, and there were more sales. Now, inventory for the least expensive homes is tightest while the sales gap has closed.  

"Buyers are stretched thin when it comes to affordability, and they are flocking to the lowest-priced homes on the market to get their foot in the door," said Zillow senior economist Nicole Bachaud. "Still, the less frenzied market compared to last year will feel like a breath of fresh air for those buyers who haven't been priced out. It's not yet a buyers market, but it's becoming a better time to buy, with more time to consider options and less chance of being dragged into a bidding war. Demand is lighter for homes at the top end of the market, and owners appear to be reluctant to sell and move to a different home that will presumably come with a much higher monthly payment at today's mortgage rates."

Shifts in inventory, sales and price cuts show the market is in the midst of rebalancing after perhaps the most competitive period ever. Home sellers are adjusting their expectations to the current reality, and buyers have more negotiating leverage than they have had since the onset of the pandemic. Still, home prices are at or near record highs, pushing buyers who remain in the market toward homes in the lower end of the price range. 

At the end of July, inventory in the most expensive third of the housing market was up 11% month over month, and 19.3% higher than a year earlier. Similarly, inventory in the middle third was up 12.7% month over month and 17.3% annually. Inventory is growing in the lowest-priced third as well, but only 11.2% month over month and 10.4% year over year. During the same period in 2021, inventory in the least expensive tier was growing on a monthly basis at nearly twice the rate of the most expensive homes. 

Home sales at all price points are lower than they were during the same period in 2021, when more homes sold than in any year since 2006. The year-over-year sales decline — U.S. home sales are down 24.1% year over year as of June — has been steeper in the mid- and high-priced thirds of the market than in the lowest price tier. In the week ending June 20 — the most recent weekly data available — home sales in the lowest price tier were down 14.2% annually, compared to 20.3% and 25.4% annual declines in the mid- and high-priced tiers, respectively. Homes in the bottom price tier made up 26.7% of sales that week in 2022, but only 24.8% of sales during the same week a year earlier. 

Along with inventory and sales volume, the share of listings with a price cut also indicates heavier demand for lower-priced homes. For much of the pandemic, the share of listings with a price cut tracked similarly across price tiers. During the past few months — as mortgage rates climbed from pandemic lows — a larger share of mid- and high-priced listings have been receiving a price cut as sellers are having a harder time attracting buyers.